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Egypt is facing a financial crisis that only foreign funding could help alleviate in the short term, Minister of Finance Hazem al-Beblawy said on Tuesday.
“We need liquidity now,” Beblawy said in a press conference at the ministry featuring a panel of experts.
The minister said that Egypt has nearly exhausted its ability to borrow internally, calling into question whether the country's financial institutions were capable of financing the coming period.
“Getting this liquidity from outside [Egypt] would be safer for our budgetary stability,” he said.
At the same event, Andreas Bauer, division chief of the International Monetary Fund’s (IMF) Middle East and Central Asia department, displayed a recent report titled “Prospects and Challenges for the Global Economy and the MENA Region.”
According to the report, as 2011 dragged on, the IMF revised its forecasts on growth in MENA oil-importing countries. They predicted that Egypt’s growth would be stunted at around 1.5 percent this year and under 2 percent in 2012.
“Despite what we previously thought, 2012 will not be a recovery year,” Bauer said.
“We are approaching a period of many challenges, to put it lightly. It centers around the budget deficit and a general slowdown,” said Ahmed Galal, director of the Economic Research Forum (ERF).
Most indicators have shown that Egypt has been suffering from capital flight and a general reluctance from investors, foreign or domestic, to invest in the country during this phase of political instability. “We are not suffering an economic crisis, we are suffering a financial one,” Beblawy said.
The means of production and the markets in general remain unchanged, but the money to keep them moving is running out fast. Beblawy made a medical analogy – one of many during this conference – that the economy is like a body, the body is fine, but it’s running out of blood.
One thing Beblawy agreed upon with Minister for Social Solidarity and Justice Gouda Abdel Khaleq was the need to address financial stability and budgetary issues.
Along with Bauer, both ministers also agreed on the need to address the issue of subsidies. Spending on subsidies in Egypt, according to the IMF, has increased disproportionate to the decrease in the deficit.
Moreover, subsidies have been inadequately targeted. Subsidies, especially petroleum – which represents two-thirds of spending on subsidies – “are a cancer in our budget,” Belblawy said. Petroleum subsidies do not support the consumer, but the producer, he added.
“We have yet to achieve any amount of social justice, which the revolution called for,” said Abdel Khaleq. He pointed to the budgetary issues and the need to create some “financial space” to be able to implement some of his social programs.
While neither directly taking aim at the IMF nor directly addressing the issue of foreign funding, Abdel Khaleq closed with a proverb indicating that Egyptians should be left to solve their own problems without foreign intervention.
A lack of policy
Beblawy and Abdel Khaleq sat on the same dais. Two ministers representing the same government, but unable to indicate any form of cohesion regarding economic, financial, or social policy in the coming period.
Despite Abdel Khaleq’s assertions that the current cabinet does not represent a caretaker government, neither he nor Beblawy gave any clue as to what the medium- or long-term vision of this cabinet would be. They did, however, present a wide array of problems facing the economy.
The ministry of finance has a problem with revenue, especially with those evading sales taxes. “The minister of finance does not have control of over 55 percent of the budget,” Beblawy said.
Abdel Khaleq indicated that there is a consensus, even among the business community, for a progressive tax system.
Both ministers and Bauer were in agreement on the need for fiscal stability, and a reassessment of petroleum subsidies in particular, with no indication of how the government is working towards achieving that.
Beblawy all but affirmed his point of view that Egypt is in dire need to foreign funding, without being able to indicate whether or not such a request would be made, or why the Supreme Council of the Armed Forces (SCAF) saw it best to reject that option to begin with.
Hany Qadry, assistant to the minister of finance, told Al-Masry Al-Youm that Egypt is not currently in negotiations with the IMF over a loan, even though it would be able to immediately take a loan of up to US$9 billion, which is three times its deposit in the fund.
“Decisions must be made to stabilize the budget and the economy,” Abdel Khaleq said.
So far, it doesn’t seem like there are any well thought out decisions or plans being made by the policy makers. Moreover, many doubt that the current government has much power compared to the ruling military council.